Troubled banks and fears in the financial world

[Devius]

In light of the recent financial crisis involving European and American banks, I thought a thread separate from the other political threads was necessary in other to post any reports and updates.

Other members are free to comment, but my primary concern is just t post news reports. So without further ado...

Deutsche Bank shares plummet as global fears over banks continue
Friday 24 March 2023 at 8:57pm

Shares in Deutsche Bank plummeted on Friday, dragging down other major European lenders, as fears over a banking crisis continue.

Deutsche Bank shares were down 8.5% on the German stock exchange after falling as much as 14%.

This is the third bank in recent weeks to come into difficulty, which has caused anxiety in the banking world to linger. Silicone Valley Bank collapsed at the start of the month and failing Swiss lender Credit Suisse had to be taken over on Sunday.

But why has Deutsche Bank fallen into difficulty and will it see the same outcome as Silicone Valley and Credit Suisse?

What is Deutsche Bank?

Deutsche Bank is a German lender that has been operating since 1870.

Like Credit Suisse, it is one of 30 globally significant financial institutions with international rules requiring it to hold higher levels of capital reserves because its failure could cause widespread losses.

On Friday, as Deutsche Bank's shares dropped, other major European banks fell too, with Germany's Commerzbank closing down 5.45%, France's Societe Generale off 6%, and Austria’s Raiffeisen down 7.9%.

Why is Deutsche Bank in trouble?

Despite a rebound in recent years, the bank went through a long stretch of low profitability.

They also had troubles with regulators going back to the 2008 global financial crisis including a $7.2 billion (£5.9 billion) penalty from US authorities for misleading buyers of complex mortgage-backed securities.

The bank was “a natural candidate” for a market selloff because of its previous troubles, large, sometimes complex holdings and market scepticism about its future profits, said Sascha Steffen, professor of finance at the Frankfurt School of Finance & Management.

The market values Deutsche Bank at less than the assets on its balance sheet.

Mr Steffen said: “That means investors are still very worried about what are the risks that the bank has on its balance sheet or its earnings potential going forward, and that’s not good."

The shares dropped on Friday after a steep rise in the cost to insure bondholders against Deutsche Bank defaulting on its debts, known as credit default swaps.

Though higher interest rates should increase bank profits by boosting what they can earn over what they pay on deposits, some long-term investments can sharply lose value and cause losses unless the banks took precautions to hedge those investments.

What has this got to do with the other troubled banks and fears in the financial world?

“It’s contagion - it’s lack of confidence, a lack of trust," Mr Steffen said.

The failures of Silicone Valley Bank and Credit Suisse have caused concerns over a potential banking crisis.

Markets have been rattled by fears that other banks may have unexpected troubles like US-based Silicon Valley Bank, which went under after customers pulled their money and it suffered uninsured losses because of higher interest rates.

After SVB collapsed on Friday, March 12, the worries quickly turned to embattled Credit Suisse last week.

This caused its share price to fall to its lowest level, prompting investors to sell shares in other banking stocks amid the panic.

The rising costs on insuring debt that Deutsch Bank has experienced was also a prelude to the Swiss lender's government-backed rescue by rival UBS.

That hastily arranged takeover on Sunday aimed to stem the upheaval in the global financial system but this does not seem to have worked.

Will Deutsche Bank suffer the same fate and SVB and Credit Suisse?

Asked whether Deutsche Bank could be the next Credit Suisse, German Chancellor Olaf Scholz said: “There is no reason to worry.”

“Deutsche Bank has thoroughly modernised and reorganised its business and is a very profitable bank,” Mr Scholz said after a European Union summit in Brussels.

European officials say banks in the EU's regulatory system - which does not include Credit Suisse - are resilient and have no direct exposure to Silicon Valley and little to Credit Suisse.

Efforts to strengthen banking regulation in recent years “puts us all in a position to say that European banking supervision and the financial system are robust and stable and that we have resilient capitalization of European banks,” Mr Scholz said.

European leaders, who played down any risk of a possible banking crisis at a summit Friday, say the financial system is in good shape because they require broad adherence to tougher requirements to keep ready cash on hand to cover deposits.

The reassurances, however, have not stopped investors from selling the shares amid more general concerns about how global banks will weather the current climate of rising interest rates.

Source:
https://www.itv.com/news/2023-03-24/...banks-continue

[Devius]

Friday 24 March 2023 6:30 am
Why have UK banks been insulated from US panic? Regulation, regulation, regulation

Regional lenders in the US have been in the spotlight since the collapse of Silicon Valley Bank (SVB) with investors concerned they might be at risk from an avalanche of deposit flights.

Since the collapse of SVB and Signature, shares in the US KBW regional banks index have fallen over 10 per cent.

In the UK however, very little attention has been paid to challenger banks which have looked much more secure.

Bank CEOs exclusively told City AM they had seen few problems on either deposit flight or credit risk.

Why have the UK’s smaller banks avoided the problems faced in the US?

In short the answer is differing regulations. In 2018, Donald Trump cut regulations on mid-tier US banks such as SVB under pressure from the very organisations the regulations applied to.

The one-term president raised the threshold at which tighter capital requirements applied from $50bn to $250bn, arguing that those banks – because they were relatively small – would have little impact on financial stability.

The raised threshold meant banks like SVB were not subject to strict rules on liquidity coverage ratios and capital requirements under the global Basel framework, nor did all of them participate in regulators’ stress tests.

In the UK, the equivalent regulations come into force much lower, between £15bn and £25bn depending on the size of the bank.

Mid-tier banks also often hold liquidity coverage ratios much higher than the 100 per cent minimum set out in the Basel rules.

In a letter to the Treasury Committee, Andrew Bailey said: “The UK’s liquidity framework has been designed in line with international standards and applies to all UK banks and building societies”.

The Prudential Regulation Authority (PRA) also conducts regular stress tests on the banks too, ensuring they are able to survive in the event of a bank run. Banks that are too small to participate are required to conduct their own tests.

While there are plans to simplify regulations on smaller banks under the Strong and Simple framework, Bailey said “there is no intention that any such simplifications will weaken the regime for small banks”.

Source:

https://www.cityam.com/regulation-why-have-uk-banks-been-safe-from-us-style-panic/

[Devius]

Silicon Valley Bank: Collapsed US lender bought by rival

The assets and loans of collapsed US lender Silicon Valley Bank (SVB) are being bought by rival First Citizens BancShares.

The failure of SVB earlier this month triggered fears about the stability of other lenders, sparking sharp falls in bank shares around the world.

In Europe, worries over the strength of Swiss banking giant Credit Suisse led to a rushed takeover by rival UBS.

Markets have remained nervous, although bank shares opened higher on Monday.

Shares Germany's Deutsche Bank fell by 14% at one point on Friday, before recovering some ground. As trading began on Monday they rose by about 3%.

SVB was seized by US regulators earlier this month after a run on the bank, and its collapse was swiftly followed by the failure of another US bank Signature Bank.

The demise of the two were the biggest bank failures in the US since the financial crisis of 2008.

Under the SVB takeover deal, announced by the US Federal Deposit Insurance Corporation (FDIC), all 17 former SVB branches will open under the First Citizens brand on Monday.

SVB customers are being advised to continue using their current branch until they receive notice from First Citizens Bank that their account has been fully moved across.

First Citizens is based in Raleigh, North Carolina and calls itself America's biggest family-controlled bank. It has been one of the largest buyers of troubled banks in recent years.

It has bought around $72bn of SVB's assets and loans at a discount of $16.5bn. The FDIC will still hold about $90bn of SVB's assets.

The FDIC said the cost of SVB's failure to its deposit insurance fund would be about $20bn.​

The UK arm of SVB was bought by HSBC earlier this month for £1.

Threat of rising rates

Interest rates were cut sharply during the 2008 global financial crisis and again during the Covid pandemic as central banks around the world sought to encourage economic growth.

But rates have been rising over the past year as central banks try to rein in soaring prices.

These rate rises have hit the value of investments that banks keep some of their money in, and contributed to the bank failures in the US.

The worry that has unnerved financial markets is that there could be other problems in the banking sector, which have not yet emerged.

Central banks around the world have stressed that the banking system is safe and lenders are well capitalised.

Sarah Hewin, head of Europe & Americas research at Standard Chartered bank, told the BBC's Today programme that there is a "very febrile environment" among investors.

"At the moment there's a lot of psychology rather than reality which is running markets."

On Sunday, the head of the International Monetary Fund, Kristalina Georgieva, said there was a "need for vigilance" given the turbulence in the banking sector and warned it was "clear that risks to financial stability have increased".

"At a time of higher debt levels, the rapid transition from a prolonged period of low interest rates to much higher rates... inevitably generates stresses and vulnerabilities."

Source:
https://www.bbc.co.uk/news/business-65084248

[Devius]

Monday 27 March 2023 11:12 am
Saudi National Bank chair resigns after bank loses $1.2bn in Credit Suisse investment

Chair of Saudi National Bank (SNB) Ammar Al Khudairy stepped down today after the bank chalked up a $1.2bn loss on its investment in Credit Suisse.

SNB said in a statement that Al Khudairy had resigned for “personal reasons” and the current chief executive, Saeed Mohammed Al Ghamdi, will takeover as chair of the lender.

The Saudi National Bank became Credit Suisse’s largest shareholder in October last year after acquiring a 9.9 per cent stake for $1.5bn.

In an interview with CNBC earlier this month, however, Al Khudairy said the bank would “absolutely not” provide any more capital to Credit Suisse to take its stake above 10 per cent.

Following the interview, investors in the bank took fright, fearing that it might run out of cash, leading to a 30 per cent fall in the bank’s share price on the day.

By the end of the week Credit Suisse’s 167 year history as an independent entity came to an abrupt end when it was acquired by UBS for $3bn.

As a result, SNB faced a $1.2bn loss on its investment, although the bank has said this loss would not affect its investment plans. The investment represented just 2.2 per cent of its total investment portfolio.

Bloomberg Intelligence’s Edmond Christou said “SNB may get about CHF296m against its initial investment of CHF1.4bn. We calculate that this equates to a 50-basis point hit to the bank’s 16 per cent CET1, wiping out a quarter’s capital generation but with no impact on P&L.”

In a regulatory statement released last Tuesday following Credit Suisse’s acquisition, the bank said the loss had not changed its overall strategy.

“(SNB) remains focused on its core strategy of growth in Saudi Arabia, which is among the fastest growing countries within the G20,” it said.

Financial institutions from the Middle East have been taking a more prominent role in global banks recently as sky-high energy prices following the invasion of Ukraine has boosted the region. Its major banks are often backed by national sovereign wealth funds, making them a tool for political ambition.

Qatar Investment Authority holds a more than five per cent stake in Barclays, making it one of the bank’s largest shareholders. First Abu Dhabi Bank, supported by the Abu Dhabi’s sovereign wealth fund, has also been considering an offer for emerging markets focused lender Standard Chartered.

SNB’s biggest shareholder is the Saudi Public Investment Fund, which is controlled by Crown Prince Mohammad bin Salman.

While Middle Eastern involvement in European banks is unlikely to come to an end, investors may think twice following the Credit Suisse debacle.

Source:

https://www.cityam.com/saudi-national-bank-chair-resigns-after-bank-loses-1-2bn-in-credit-suisse-investment/?utm_source=dlvr.it&utm_medium=twitter

[Devius]

Tuesday 28 March 2023 1:54 pm
Andrew Bailey dismisses banking volatility as ‘testing out’ but stresses BoE remains ‘vigilant’

Andrew Bailey today dismissed recent volatility in the banking sector as “testing out” firms although he stressed that officials in the UK remained “very vigilant” for further signs of friction.

Responding to a grilling by MPs on the treasury committee, the governor of the Bank of England said “there’s been quite sharp moves in markets recently…I would not say those in my estimation are based on identified weaknesses…there’s quite a lot of testing out going on at the moment”.

The governor was referring to significant share price movements at some of Europe’s largest banks, such as Deutsche Bank, which fell nearly 10 per cent last Friday.

The global banking system has been jittery since the collapse of Silicon Valley Bank earlier this month, although Bailey said the UK financial sector remained secure.

“I don’t think…that any of these features will cause stress in the UK banking system…I don’t think we’re at all in the place we were in 2007-08”.

Bailey argued that the collapse of Credit Suisse was an issue of “viability” of its business model rather than any deeper problems in the financial sector.

Nor was it a complete surprise. Bailey said the Bank had been involved in contingency planning with Swiss and US regulators since last October.

“We are in a position of very heightened – frankly – tension and alertness.”

The governor and Sam Woods, chief of the Prudential Regulation Authority – an arm of the Bank that monitors the plumbing of the UK financial network – also shed some light on the sale of SVB UK, telling MPs that officials worked all through Saturday and Sunday night, only guaranteeing a deal at 4am on Monday morning.

Bailey told MPs that while there had been other interested parties, by early evening on Sunday “we only really had one left, and that was HSBC.”

One aspect of HSBC’s purchase which has attracted attention is the exemption it secured to ring-fencing rules. The ring-fencing regime is designed to separate riskier parts of a bank’s operations from its retail division.

Woods said the deal involved creating a “small hole in the ring-fence,” something which he stressed should not be replicated in other examples unless there was “extreme urgency”.

But Andrea Leadsom, an MP on the treasury committee, argued that “allowing a tiny hole to be punched in the ring-fence…[undermines] the whole basis of the ring-fence”.

“Life is not perfect, you have to make trade-offs sometimes,” Woods replied.

The panellists also said they were not concerned about the government’s proposed changes to the ring-fencing regime going ahead amidst turbulence in the financial sector.

Woods said “I am quite content with it to go ahead, I think it’s fine. I just think we should keep a careful eye on the bits that potentially weaken the regime.”

Woods highlighted in particular banks with small retail divisions in the UK but large international investment banking operations.

Source:

https://www.cityam.com/andrew-bailey-dismisses-banking-volatility-as-testing-out-but-stresses-boe-remains-vigilant/

[Devius]

UBS brings back former chief to oversee Credit Suisse takeover
Sergio Ermotti, who stepped down in 2020, will rejoin Swiss bank as it prepares to absorb troubled rival
Wed 29 Mar 2023 10.31 BST

The Swiss bank UBS has announced the surprise return of Sergio Ermotti to oversee the takeover of its rival Credit Suisse, amid global concerns over the stability of the banking industry.

Ermotti served as chief executive from 2011 until 2020, overseeing UBS’s recovery from the global financial crisis. He will take over again on 5 April, when his main task will be to implement the complex merger with Credit Suisse, which was forced through by Swiss financial regulators in an attempt to prevent a chaotic collapse.

UBS took over Credit Suisse on Sunday in a £2.65bn deal that has dealt a heavy blow to the reputation of Switzerland’s banking industry. The Credit Suisse turmoil was preceded by the collapse of Silicon Valley Bank this month. Regulators and investors around the world have been watching closely amid concerns that the financial difficulties could spread across the global banking system.

The bank’s decision to turn back to its former chief executive means the current boss, Ralph Hamers, will step aside after less than three years in the job. He will serve a short period as an “adviser” alongside Ermotti.

The bank said the takeover process meant it had new priorities for which Ermotti would be better placed, citing his experience in cutting back UBS’s investment bank.

Hamers, who had been a surprise choice as chief executive in 2020 because of his lack of investment banking and wealth management experience, said: “I am stepping aside in the interests of the new combined entity and its stakeholders, including Switzerland and its financial sector.”

Colm Kelleher, UBS’s chair, told a press conference on Wednesday that parts of Credit Suisse had a bad culture that UBS did not want to import, with the top priority being to stabilise the situation, Reuters reported.

Speaking alongside Kelleher, Hamers said one of Ermotti’s priorities would be reducing the size of Credit Suisse’s investment banking activities, which were not a core focus for UBS. Ermotti said the bank would not rush into making decisions.

Kelleher said he wanted to “express my deep respect and gratitude for all that Ralph has achieved over the last two-and-a-half years and for his instrumental role in delivering the Credit Suisse deal, as well as his understanding of the current situation and willingness to step down. While the acquisition will support UBS’s existing strategy, it imposes new priorities on us.”

Since leaving UBS, Ermotti has served on the boards of a cash shell run by Italian manufacturing-focused private equity firm Investindustrial, which merged with Italian fashion group Ermenegildo Zegna, and the Swiss development agency Innosuisse. He is the chair of the board of the insurer Swiss Re but will stand down after its annual meeting on 12 April.

Source:

https://www.theguardian.com/business/2023/mar/29/ubs-brings-back-former-chief-oversee-credit-suisse-takeover-sergio-ermotti

[jillfan666]

The Modern World is easy to understand once you think of every large corporation, financial institution, governments from local to national levels, and political parties as rackets.

"Racket" definition in this context from the US Merriam Webster on-line dictionary"

a. a fraudulent scheme, enterprise, or activity
b. a usually illegitimate enterprise made workable by bribery or intimidation
c: an easy and lucrative means of livelihood

The problem is that an overwhelming majority of people in the world are not members of the rackets. The rackets only work for their members when almost everyone is not a member.

[Devius]

Originally Posted by jillfan666

The Modern World is easy to understand once you think of every large corporation, financial institution, governments from local to national levels, and political parties as rackets.

"Racket" definition in this context from the US Merriam Webster on-line dictionary"

a. a fraudulent scheme, enterprise, or activity
b. a usually illegitimate enterprise made workable by bribery or intimidation
c: an easy and lucrative means of livelihood

The problem is that an overwhelming majority of people in the world are not members of the rackets. The rackets only work for their members when almost everyone is not a member.

Funny you should mention racket...

From the Guardian's live reporting...

13.18 BST
Credit Suisse still helps wealthy Americans dodge taxes – Senate committee

Credit Suisse has violated a 2014 plea agreement with the US government and concealed more than $700m from tax authorities – and the Swiss bank continues to help ultra-wealthy Americans dodge taxes, the US Senate Finance Committee has concluded after a two-year investigation.

The committee said it had uncovered “major violations” of the 2014 agreement between the Swiss lender and the US Department of Justice for enabling tax evasion.

These violations include failing to disclose nearly $100m in secret offshore accounts belonging to one family of American taxpayers, which it described as an “ongoing and potentially criminal conspiracy”.

The committee chairman Ron Wyden said:

"At the center of this investigation are greedy Swiss bankers and catnapping government regulators, and the result appears to be a massive, ongoing conspiracy to help ultra-wealthy US citizens to evade taxes and rip off their fellow Americans."

Credit Suisse said it did not tolerate tax evasion and had been cooperating with US authorities. The bank said:

"Credit Suisse’s new leadership team has cooperated with the Committee’s inquiry and has supported the work of Senator Wyden, including in respect of suggested policy solutions to help strengthen the financial industry’s ability to detect undisclosed US persons."

[Devius]

‘I am truly sorry’: Credit Suisse chair pleads with angry shareholders at annual meeting
Published Tue, Apr 4 2023 - 4:01 AM EDT

Key Points

• Shareholders took to the stage at Credit Suisse’s annual general meeting Tuesday to demand answers and accountability over its controversial takeover by UBS.
• Swiss authorities brokered an emergency rescue of the stricken bank by its larger domestic rival for just 3 billion Swiss francs, over the course of a weekend in late March.
• Shareholders began arriving at the meeting in droves on Tuesday morning and a police presence was established near the venue.

Credit Suisse Chairman Axel Lehmann on Tuesday told shareholders he was “truly sorry” for the collapse that led to the bank’s controversial takeover by UBS.

“It is a sad day for you and for us too. I can understand the bitterness, the anger and the shock of all those who are disappointed, overwhelmed and affected by the developments,” Lehmann said at the bank’s annual meeting, the first time its leaders have addressed the public since the rescue.

“I apologize that we were no longer able to stem the loss of trust that had accumulated over the years, and for disappointing you.”

A police presence was established early Tuesday at the venue, as protesters and shareholders began arriving in droves, hoping for answers and accountability following the demise of the 167-year-old Swiss institution.

A number of shareholders took to the stage over the course of the morning to lambast the bank’s leadership and demand further explanation of the process and reasoning behind the deal.

Swiss authorities brokered an emergency rescue of the stricken bank by its larger domestic rival for just 3 billion Swiss francs, over the course of a weekend in late March.

It followed a collapse in Credit Suisse’s deposits and share price amid fears of a global banking crisis, but the deal remains mired in legal and logistical challenges. Neither UBS nor Credit Suisse shareholders were allowed a vote on the deal.

“Until the end, we fought hard to find a solution, but ultimately there were only two options: deal or bankruptcy,” Lehmann, who became chairman in January 2022, told shareholders. “The merger had to go through.”

At 2 p.m. London time, Lehmann was re-elected as chairman until the completion of the merger, winning 55.67% of shareholder votes. The remaining board members were narrowly re-elected, with the exception of five that did not stand again.

In a statement Sunday, the office of the attorney general confirmed that Switzerland’s Federal Prosecutor is investigating potential breaches of Swiss federal law by government officials, regulators and top executives at Credit Suisse and UBS.

Both banks declined to comment on Monday.

Source:
https://www.cnbc.com/2023/04/04/cred...scue-deal.html

[Devius]

Swiss parliament holds emergency session on Credit Suisse rescue
Tue, Apr 11, 2023, 9:21 AM GMT+1

By Noele Illien and John Revill

BERN (Reuters) - Since Switzerland's authorities last month pulled out all the stops to rush through a rescue of Credit Suisse, a storm has been brewing in the normally tranquil country.

Many Swiss parliamentarians have criticised the shotgun marriage, which saw Credit Suisse taken over by rival UBS for 3 billion Swiss francs ($3.3 billion) and propped up with over 250 billion francs in guarantees and support.

On Tuesday, they will meet in Bern for an extraordinary session to discuss Credit Suisse's downfall as well as the government's open chequebook response.

The unusual event - the third such session in over twenty years - provides parliament with a chance to reject the massive loans given as part of the rescue package.

The vote is, however, largely symbolic as the state has already committed the funds and lawmakers cannot overturn that decision.

In the lead-up to the announced merger, a sub-group of six members of parliament approved the financial commitment on behalf of the legislative body, to the ire of the almost 250 lawmakers left without a say.

"It's the responsibility of politics to have a say especially when such a big contribution is being made by state and emergency law is being used," said Celine Widmer, a member of the Swiss National Council for the left-leaning Social Democrats.

“We have a lots of questions that need to be answered," she told Reuters.

"There is a lot of anger and frustration in the Swiss population and we can feel that," said Roland Fischer, another lawmaker. "In theory, we could reject it but that would not hold up legally."

In Tuesday's session, lawmakers will get a chance to challenge the rushed rescue package and discuss whether conditions can be imposed on Credit Suisse.

Last week, Switzerland announced it was cutting bonus payments for Credit Suisse's top management.

"We demand a thorough investigation into how the Credit Suisse crisis could have come about," Thierry Burkart, leader of the centre-right FDP party, told Swiss newspaper Tages-Anzeiger.

"The de facto state guarantee of the systematically important banks is a big problem."

Credit Suisse's rescue angered not only politicians but many in Switzerland. A survey by political research firm gfs.bern found a majority of Swiss did not support the deal.

A poll of Swiss economists found that nearly half think the takeover of Credit Suisse by UBS was not the best solution, warning the saga has dented Switzerland's reputation.

Switzerland's KOF economic research institute found that 48% of the 167 university economists it questioned would have preferred a state takeover and possible later sale of Credit Suisse.

There are also growing worries about a staff cull.

In an open letter to the country's parliament, the Swiss Bank Employees' Association said on Tuesday that Credit Suisse and UBS must freeze any job cuts.

($1 = 0.9094 Swiss francs)

(Additional reporting by John O'Donnell; Editing by Christina Fincher)

Source:

https://finance.yahoo.com/news/swiss-parliament-holds-emergency-session-082141792.html